ACQUISITIONS RESHAPE THE MEDIA INDUSTRY

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The deep-pocket telcos, stock-rich new-found public media companies and a media industry that in general is frozen on the idea that bigger is better, binged last year on mergers and acquisitions that radically altered the industry's landscape.

Evidence of this M&A craze is apparent in the "decomposition" of last year's ranking of the 100 Leading Media Companies. In this 20th annual report, 16 new slots had to be filled because of acquisitions.

New entrants to the top 100 list largely had operations revolving around traditional media. Five concentrate on cable, three on radio, two on magazine and one each on outdoor and TV.

TV MARKET SET TO FLOURISH

A TV-based entry has been rare the past few years, largely because the segment has remained relatively fixed due to government restrictions that have limited station ownership. All that will change. Early this month the Federal Communications Commission ruled that broadcasters, under certain circumstances, can own a second station in a market.

New TV entrant Paxson Communications Corp., which operates the nation's newest TV network on UHF stations, could benefit the most from the new government measure, because of its need for programming and economies through joint sales agreements and the need for more venues by the four major networks.

A few more non-traditional media companies-AT&T Corp., Bloomberg, Yahoo! and Excite@Home-established first-time beachheads on the chart, attained this year by generating revenues of at least $201.6 million from media. Media are defined as distribution businesses that carry advertising (see methodology, Page S-5).

Media acquisitions kept investment bankers busy. They structured 277 deals involving the top 100 at a value of more than $250.3 billion, according to data from Thomson Financial Securities Data covering a period from 1998 to mid-1999 (see story, charts Page S-7, S-10).

AT&T Corp.'s all-consuming desire to move rapidly into broadband captured it a No. 2 ranking from its buyout of cable companies Tele-Communications Inc. and MediaOne Group at a hefty investment totaling more than $100 billion.

TCI, last year's third largest media company, and MediaOne, then No. 17, combined to give AT&T 10.7 million cable customers. Although to get MediaOne, AT&T not only paid $58 billion in stock and cash, but gave up four million customers to losing bidder Comcast Corp.

TELEPHONY DEMANDS GROW

The Comcast payment is pudding proof of the value AT&T puts on telephony. Through joint ventures, AT&T is helping cable companies-InterMedia Partners, Falcon Cable, Bresnan Communications, Peak Communications and Insight Communications-upgrade their systems to allow local telephone service, thereby breaking the de facto hold by the Baby Bells on local service. AT&T couldn't risk alienating Comcast, which at six million subs holds about 10% of the cable market. An agreement to offer telephone service to Comcast system subscribers was part of the MediaOne settlement.

AT&T by far has the largest number of high-speed digitized subscribers (1,300,000 to runner-up Cox Communication's 600,000) of any cable system in the country. Most MSOs have been slow to upgrade, both because of the expense involved in giving their cable two-way addressability and rapid advances in black-box modem technology likely to render current boxes obsolete. Cable modems move data at speeds 10 to 30 times faster than telephone modems.

Comcast Corp., this year's No. 17, is just as bent on advancing its telephony aims as AT&T. It is adding nearly 10,000 digital subs a week among its 5.5 million customers. It also bought 39% of last year's No. 78 Jones Intercable (1.5 million subs) and is planning to buy another 39% by year-end.

Though still small, top 100 newcomer RCN Corp. specializes in high-speed hookups. Its entire system, stretching from Boston to Washington, and including the San Francisco Bay area, has the capability of serving 350,733 homes with its high-speed, high-capacity advanced fiber optic network. It currently claims 270,000 customers, of which 100,000 are digital.

CHARTER'S BIG BUYS

Acquisition also defined Charter Communications, for which at no time in the year were operations static. Charter acquired Marcus Cable Co. and Falcon Cable, Nos. 59 and 88 last year, accounting for 2,600,000 new cable subs. Charter also was acquired by Paul Allen, proprietor of Vulcan Ventures investment group and co-founder of Microsoft Corp.

Early this year, Adelphia Communications Corp. went from 2.3 million cable customers to 5.1 million in a triple buyout of Century Communications and FrontierVision Partners, Nos. 64 and 94 a year ago, and Harron Communications Corp. Telephony is integral to Adelphia's focus; through subsidiary Hyperion Telecommunications, a competitive local exchange carrier (CLEC) that builds switched-circuit telephone systems, it is delivering high-speed data over fiber optic cables. Mr. Allen also recently invested in Dallas-based Allegiance Telecom, like Hyperion a CLEC.

DIRECTV COMPRESSES DBS

As an industry, direct-broadcasting satellite-the delivery service most threatening to cable's video delivery-consolidated at the top with DirecTV, owned by the Hughes Electronics Corp. subsidiary of General Motors Corp., buying competitors Primestar and U.S. Satellite Broadcasting, Nos. 27 and 65 a year ago.

DirecTV has little data offering and no telephony products, but it provides the video component in bundled services by local telcos, including SBC Communications and Bell Atlantic Corp.

Cox Entertainment's closely held Cox Communications bought TCA Cable, No. 82 a year ago, and more recently picked up cable operations of Gannett Co. (Multimedia Cablevision) and Media General's cable.

The latter acquisition, valued at $1.8 billion, meant a cost-per-subscriber of $5,400-the highest such cost in a cable acquisition to date.

RADIO STAYS HOT

Radio has not lost its attractiveness to dealmakers.

Capstar Broadcasting Partners, last year's No. 51, fell to Chancellor Media Corp.; Jacor Communications, No. 54 a year ago, merged with Clear Channel Communications; and American Radio Systems Corp., No. 76 in 1998, was bought by CBS Corp.'s Infinity Broadcasting. Infinity, holding CBS' radio and outdoor business, spun off of CBS in a stock offering last year, but remains 81.8% owned by CBS.

Infinity picked up the nation's largest outdoor company, Outdoor Systems, to add to its TDI unit. Outdoor Systems was last year's No. 44. In another outdoor buy, radio mega-company AMFM Inc., renamed from Chancellor Media Corp., sold its outdoor business, newly acquired in 1998, to this year's No. 54, Lamar Advertising Co.

Two London-based companies made the biggest magazine purchases on the chart: United News & Media claimed CMP Media, last year's No. 61, and Emap took Petersen Cos., forming Emap Petersen, No. 82 this year.

Proof that the 100 Media are a work in progress is this year's No. 62, Chronicle Publishing Co., which is poised to exit the list. The company is selling the San Francisco Chronicle to Hearst Corp., owner of the San Francisco Examiner, which has a joint operating agreement with the more dominant Chronicle.

Also, cable MSO Bresnan Communications Group, this year's No. 86, is being sold to Charter Communications, and No. 60 InterMedia Partners is scheduled to close down operations this October. It divested itself out of business, selling off

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